Partnerships are much like marriages. Two people with similar ambitions agree to share their skills and resources for the benefit of both parties. Like a marriage, a partnership requires the voluntary mutual cooperation of both parties. Misconduct could do real damage to the relationship between the partners.
If a partnership is like a marriage, then a partnership agreement is comparable to a prenuptial agreement. It clarifies expectations and ensures the protection of both partners. What matters do aspiring business partners frequently need to address in their partnership agreements?
1. Compensation and contributions
Unmet expectations can destroy an otherwise healthy relationship. Business partners must discuss what they expect to invest in the company and what job functions they intend to perform. They also need to talk about what they expect to receive as compensation when the business is successful.
2. Long-term business goals
Discussing the general concept for the business isn’t enough. Partners need to share priorities for the long-term development of the company if they want to continue working well together indefinitely. Establishing long-term goals for the business can help prevent scenarios in which partners end up disagreeing about whether to sell the company or how to respond to changing market conditions.
3. A buy-sell agreement
Even those who shared values and long-term company priorities could experience changes and circumstances that affect their commitment to the company. A buy-sell agreement outlines the terms for a partnership buyout scenario. In cases where one partner must acquire the other’s interest in the company, the buy-sell agreement limits the likelihood of conflict.
Creating a thorough partnership agreement can set new business partners up for success and long-term cooperation. Those excited about a possible partnership may need to discuss their business plans with a legal professional to better ensure that they properly protect themselves, and that’s okay.